Thursday, July 3, 2008

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Some Comments About Today.‏
Sent: Wed 7/02/08 11:08 PM

Hi bradley.

Sorry this is coming so late. I arrived home earlier today to
find that Tonya had not weathered my absence particularly well -
- fleas, infection, rash, etc. So I've been playing Daddy
until just a while ago.

But I wanted to get some thoughts out to you about today's
market action...and the market in general. During my flight, I
watched CNBC most of the way home. Interesting day from 36,000
feet at 500 mph. I had a very clear view that today was going
to be a real stinker. Somehow there is peace in sitting in
your chair watching the market, and knowing that there isn't
one thing you can do. When action is not an option, the senses
are more objective.

I got home and started to read today's forum. It seemed to me
that everyone was a bit scattered...just seemed like there was
a lot of confusion, and a lot of folks just eager to "DO"
something. I'll be honest with you -- I started to get a
little frustrated because I really felt that the theme over the
past few weeks was right. That is, caution is a trading
strategy during these times. Less is more. Discretion and
discipline over bravery. (If you want to exhibit your bravery,
join the Marines and go to Afghanistan).

I know that some of you have been getting a bit frustrated with
this tone -- and I acknowledge that this isn't the
typical "stock picking newsletter" where the real market is in
gambling and not trading/investing! I've seen those
newsletters -- just a constant barrage of new stock picks,
irrespective of market environment. The idea is to keep your
subscribers "busy"! Like slot machines, you just want to
keep 'em pulling the handle and watching the cherrys, berries
and $$ roll around. Even if you post a bunch of lousy trades,
the subscribers will stick around as long as they get to keep
pulling the handle. They like the ACTION more than making
money. Simply put, "HOPE" sells! Hope keeps us engaged. Put
another way, think "lottery ticket".

I chose to go a different way. I decided that there was indeed
a market for folks interested in really learning to manage
their own money, and who understood that the stock market
should not fall into the "entertainment" category. I wondered
whether I might be spinning my own wheels with this endeavor of
mine -- to really help folks help themselves; to put people in
a position of power -- actually, of empowerment -- where the
knowledge gained ultimately enables folks to make better, more
informed decisions. Turns out that I was right. Lots of folks
are eager to learn and I'm eager to teach. If you're receiving
this email from me, you're probably one of those folks!

But back to the Forum. So I was reading this morning's
transcript and I found myself frowning. Now, mind you, it is
not my place to approve or disapprove of what is being said.
It's your Forum, not mine. Rather, I see the quality of the
Forum as a reflection of the job I am doing...and not as a
reflection of the job you are doing. You are doing the best
you can, and that's all that matters. But I'm not getting paid
to do the best that I can; I'm getting paid to help you be the
best you can be. Maybe that's a subtle nuance, but I think it
is important to draw that line. I read the Forum as a way to
gauge my own performance as a "mentor".

But as I read through the entire transcript, I saw things start
to come together and I was smiling by the end of it. First,
lots of new faces, and that's a good thing. Welcome to the
newbies! Most importantly, I saw some folks stepping up and
reminding everyone about the nature of the market -- that is
rarely, if ever, gives us what we want. And it sure as heck
doesn't give us what we need. (That's the end of the Rolling
Stones theme) Rather, the market gives us what we TAKE! I saw
folks preaching discipline and patience...and letting the
market do what it will do without trying to "predict" a bottom.

As I finished up my reading, I could see that perhaps some of
the things we are learning together are actually translating
into better decisions and actions. And that makes me proud.
It makes me proud of myself for doing the work to put this
together; and for staying the course and keeping it aligned
with my original vision rather than compromising it for the
sake of expediency and profit. But more importantly, it makes
me proud of you -- because I'm seeing some members make the
transition from eager newbie to a more well-reasoned and
thoughtful place. That's really inspiring and makes me want to
work even harder.

Again, I'm proud to be a part of your growth as a trader...but
it's not about me -- it's about you.

Now, some of you were buying the beaten down high-fliers today,
and that's fine. That would not have been my trade -- with an
abbreviated day tomorrow followed by a 3 day weekend, I
wouldn't have been doing much of anything except maybe trimming
some more (hard to do when you've got as little capital in
equities as I do. Just not too much to trim). But if you were
buying, fine! Just do one thing tonight (if you haven't
already) -- define your loss! bradley, this is a falling
knife market right now. It's not falling fast...but it is
constantly falling.

We are very, very ripe for an oversold bounce, with the S&P
Short Range Oscillator at -10! That's pretty negative! But
the oscillator is not a timing indicator, it's a "condition"
indicator. Conditions remain ripe for an oversold rally. The
little blips we've getting most mornings have been sold into
each time. Just not much there.

But stay patient -- I can't tell you when the market will be
ripe for buying. I can just tell you that I don't think we're
there yet. I can also tell you these 5 things:

1. The market doesn't care about you.

2. The market doesn't even know about you.

3. The market will not comply with your wishes.

4. The market will not conform to your desired timeline --

5. The market will do what it will do...and it is your task to
surf the market.

bradley, that's the best way I can put it. You've got to
surf the market. And any surfer will tell you that the best
time to go surfing is when the waves are coming in. During the
time of the day when the tide isn't doing much and the waves
are not moving much, it's senseless to go out in the water
surfing. You just sit on your board and your skin shrivels up
like a prune. Finally, when you are tired and impatient and
have sat there long enough, you decide to go in. As soon as
the board is loaded on the car and you've dried off, the waves
start coming in.

On another note, I'm getting the impression that many folks
just not understanding the VIX. When you say, "Does it really
matter?", what you are really saying is, "In order to form the
kind of low that can lead to a sustainable rally, do we really
need to see everybody forced to the sidelines in a desperate
exchange of stock for cash?" The answer is "yes". We need
that dramatic stock-for-cash exchange so that the cash can
start being put to work without having an overhang of "latent
selling pressure" from folks who did not sell and who will
continue to sell into any rally.

Remember, it takes eager buyers to push stocks higher. Without
eagerness, buyers only put in low bids and won't "pay up" for
the stock by "taking" the offer. (That describes the current
environment -- there are buyers. They just aren't buying at
the offer (which is what must be done to push a stock higher).
Rather, they are just sticking their bid out there and
saying, "Well, if I get hit, I get hit. But I'm paying my
price, and not a penny more."

That's what's going on now. There are buyers. There are
ALWAYS buyers -- it's the level of aggressiveness that changes.

The VIX is a REFLECTION of the aggressiveness of buyers and
sellers. It does not DETERMINE that aggressiveness. Get it?
If you don't understand the VIX, then forget all about it,
bradley. Understanding the VIX isn't as important as
understanding the conditions that are required to put in a
tradable, reliable bottom. Yes, the VIX will reflect that.
But if you don't get it, then you don't get it. That's OK --
get over it! But you must understand the concept -- understand
that bottoms are made when hardly anyone wants to own stocks,
and those who must own stocks are striving to protect their

Here's one thing I'll promise you. All this talk about how the
VIX just might be it really isn't important
right now...etc. Well, lots of folks are saying that, but I'll
go back to #4 above -- the market won't conform to your
timeline. As soon as traders begin to disregard the need for a
big washout and start putting their money back in the market in
a complacent and undisciplined manner (which is the
early "greed" part of the market cycle -- ill-conceived greed,
but greed nonetheless), we'll get the washout that had been
dismissed as unnecessary.

bradley, that's the way the market works.

I'm not going to tell you what to do, but I am going to urge
you to ask one question before you take any action: "Why here;
why now?"

Your answer to that question should dictate your action.

OK, here are the links to tonight's videos. They are long, so
please allow them to load completely (wait to see "Done" on the
lower left corner of your browser before playing the video).

Index Recap:

Stock Recap:

OK, I'll see you in the Forum tomorrow as we watch to see how
the market reacts to the European Central Bank's decision.

Have a good evening (what's left of it).


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